Question

Refer to the data for Pennewell Publishing Inc. (PP). Assume that PP is considering changing from its original capital structure to a new capital structure with 35% debt and 65% equity. This results in a weighted average cost of capital equal to 9.4% and a new value of operations of $510,638. Assume PP raises $178,723 in new debt and purchases T-bills to hold until it makes the stock repurchase. What is the stock price per share immediately after issuing the debt but prior to the repurchase?

Answer 1

$57.69 per share

Step-by-step explanation:

The computation of the stock price per share immediately after issuing the debt but prior to the repurchase is shown below

Price per share = Value of equity ÷ number of Shares

where,

Value of equity is

= Value of operations + T-bills value - Debt value

= $576,923 + $259,615 - $259,615

= $576,923

And, the number of shares is 10,000 shares

So, the price per share is

= $576,923 ÷ 10,000 shares

= $57.69 per share

We simply applied the above formula